Under Secretary of State for Economic and Business Affairs
Remarks before the House Ways and Means Subcommittee on Trade Washington, DC, June 17, 1997.
Mr. Chairman, I welcome this opportunity to testify before you on the renewal of normal trading status for China. As Secretary Albright has said, "there is no greater opportunity -- or challenge -- in American foreign policy today than to encourage, China's integration into the international system as a fully responsible member," The world's most populous nation -- more than one out of every five people on the face of the earth is still not a full member of this system. China's emergence as a global power is a development of immense, historic significance, both to the United States and the world. The People's Republic of China is, of course, already a key regional power in Asia, and its high rate of economic growth means we must assume it will become still more important. But with power must come responsibility -- responsibility for acting according to international norms in human rights, proliferation, trade and commerce, and the resolution of political disputes. Bringing China more fully into the international economic system, including its rules, standards, and institutions, benefits us as a nation and average Americans as workers, consumers, and citizens.
China shares borders with more countries -- fourteen -- than any other in the world, and has unresolved border issues with four. It has a territorial dispute with Japan in the East China Sea and with several countries in the South China Sea. From the Korean Peninsula to the Spratly Islands, China is a key factor in the stability of the Asia-Pacific region.
In short, China is already a country of critical significance to the United States and to our allies and key trading partners, and is likely to become still more important in the years ahead. its role could be helpful or harmful, and it is the task of American diplomacy to help ensure that it is the former. The manner in which we engage China will have an important bearing on whether it becomes integrated into international norms and institutions or whether it becomes an isolated, unpredictable, and disruptive force in the world. Few developments will have a greater effect for better or worse on what kind of world we live in during the next century. We must avoid taking actions that will have the effect of isolating China. China, for all of the very real problems we have with her actions, is not our enemy- and we must not act as if she is.
The question that concerns us today1 whether to revoke China's MFN status, will have a crucial effect on how we conduct our policy toward China. is there any reason to believe that China's conduct on the issues that concern us will improve if we deny it the normal trade benefits virtually every country on earth receives? is there any reason to believe that we can deal effectively with the issues that concern us by severing our trade relations with China? To ask the question is to answer it. Such a policy assumes we are fated to confront China in the future, and that American diplomacy is helpless to prevent this result.
We do not have the luxury to take such a stance. We cannot walk away from engaging China. American interests would be seriously damaged if we were to do so.
MFN is Central to Our Strategy of Comprehensive Engagement
This Administration is committed to a strategy of comprehensive engagement with the PRC in order to achieve our goal of incorporating China into the international system. American foreign policy has consistently focused on this goal for 2 years, a period embracing the terms of six Presidents of both parties. Our policy is designed to pursue cooperation where appropriate while clearly and directly opposing those Chinese actions with which we disagree. We work with the PRC on a number of issues, ranging from alien smuggling and drugs to Cambodia and our cooperative efforts to enhance security on the Korean Peninsula. Where we have differences, we have worked to change Chinese policies, ranging from human rights to proliferation of weapons of mass destruction, using the full range of tools at our disposal -- public and private diplomacy, bilateral and multilateral discussions, and targeted sanctions when appropriate. In this regard, we continue to maintain sanctions that were put in place after the suppression of the pro-democracy demonstrations in Tiananmen Square in 1989; during the March 1996 tension in the Taiwan Strait, we dispatched two aircraft carrier battle groups to avoid a miscalculation; and our willingness to impose sanctions resulted in favorable conclusions to discussions on textiles shipments and intellectual property. Revocation of MFN is far too blunt of an instrument to advance these policies. Its consequences would adversely effect many of our policies. We have a very strong interest in the maintenance of a high degree of autonomy in Hong Kong and the preservation of Hong Kong's basic freedoms, and we carry on an active dialogue with Beijing on this issue.
MFN is central to this strategy. Access to the American market is the most tangible evidence there is of the benefits of joining the international system. MFN - most favored nation treatment -- does not, of course, in any way suggest that we are bestowing favors on China. It is simply ordinary tariff treatment, the same as we have with virtually every country in the world. Renewal of MFN must be based on a clear-eyed calculation of Amen-can interests. What is.best for American workers, Amen-can business, American consumers, and American foreign policy interests in Asia? On all of these counts, it is in our interest to have a normal trading relationship with China.
By contrast, revocation of MFN would reverse a quarter century of bipartisan China policy. It would also isolate us from our friends and allies, every one of which would continue normal trade with China. In the run-up to this fall's party Congress in Beijing, revocation would discredit the forces of reform in Beijing and would strengthen those who seek to fill the country's ideological void with a belligerent nationalism. We arc unlikely to influence internal developments in any country, especial one as large as China, if we are not engaged with it. And MFN is essential to any policy of engagement.
Moreover, as I said before, there are only a tiny handful of countries with which we do not have trade or MFN. To include China with these mostly pariah states would encourage precisely the opposite of the conduct that we wish to see. Far from helping to integrate China into the international system, such an action would send Beijing a message (hat there is no place for it in the community of nations. And that message could result in a new and damaging pattern of conduct on China's part to the detriment of the U.S. and the international system.
Revocation of MFN Would Harm Our Economic and Trade interests
Termination of normal trade status would damage our foreign policy with China across the board, and would be directly counterproductive in the area of trade. Large number of our workers and businesses scattered all around the country benefit from normal trade with China. Today we have annual exports to China of $l2 billion, directly responsible for some 170,000 American jobs. These exports, and these jobs, would be at risk from China's certain retaliation to the revocation of MFN.
We already have an impressive record of achievement on trade issues with China, and momentum is building for still more successes. In June of last year, we reached an accord on protection of intellectual property that has already advanced our efforts to protect American products in some of our strongest export industries. Since that agreement, China has closed 39 illegal CD factories and established hot-lines in southern China offering rewards that are worth more than 20 times the average local annual salary in exchange for tips leading to factory closings. In February, we concluded a textile agreement that provides expanded access to the Chinese market for American textile producers. During Vice President Gore's trip to China in March- Boeing and General Motors signed major contracts that demonstrate both the current importance of the Chinese market and its vast potential.
China has reinvigorated its negotiations on accession to the World Trade Organization in certain important areas and we are making progress toward a commercially meaningful accession package, although there remains a very long road for China to travel. We have made clear that a viable accession package will require China to cut tariffs, provide access to U.S. services, allow U.S. companies to import and export goods to and from China, and remove quotas and unfair licensing rules. To meet WTO requirements, China also will have to make laws public, require judicial review of all trade activities, apply all trade laws more uniformly, and submit to WTO dispute settlement to ensure compliance with WTO rules. China's accession to the WTO under these terms would open significant new export opportunities for American firms. it would also represent another milestone in our strategy of integrating the PRC into the world community. Revocation of MFN would halt progress in all these areas, and would almost certainly undo the gains we have so painstakingly achieved.
Despite the significant progress we have made, we still face a large trade deficit with China. The reason for this deficit are many, including the use of China by other Asian countries as a processing location for their own exports. Revoking MFN is not the way to address them.
I have personally raised, both privately and publicly during my trip to China last March, our profound concerns with the trade deficit -- last year $39.5 billion. 1 stressed that it was not sustainable. I believe China better appreciates this. It has quadrupled since 1990 and is the second largest in the world. 1 presented a list of major projects for which U.S. companies were highly competitive and advocated on their behalf. but the most important way to reduce their unacceptably high deficit is through a sound, commercially viable WTO package that will open China's markets to our products. The way to reduce the trade deficit with China is not by limiting China's exports to America, thereby harming our own workers and manufacturers who depend on Chinese inputs for their own products. Rather, it is to remove the barriers confronting American exports to China We are pursuing this goal with all the tools available, including WTO accession negotiations and our bilateral trade negotiations.
The World Bank estimates that China will invest $750 billion in infrastructure in the next decade. Without a normal trading relationship, Amen-can firms would be frozen out of this market, to the delight of our competitors. By increasing the prices of imports, it would also add over $500 million to the shopping bill of the American consumer.
Since many Chinese exports are "low end," low technology goods, lower-income Americans will feel a disproportionate share of that increased bill.
Revocation of MFN Would Hurt Hong Kong At A Critical Time
In two weeks, Secretary Albright, together with many members of Congress, will travel to bong Kong for the historic occasion of the reversion of that colony to Chinese sovereignty. Her visit will emphasis our strong support for the maintenance of the rule of law in Hong Kong and the protection of civil liberties and basic freedoms for the people of Hong Kong. Far from supporting Hong Kong, revocation of China's MFN status would undermine the basis of the island's prosperity.
Hong Kong handles over 50% of U.S.-China trade, making it highly dependent on the continuation of that trade. The Hong Kong Government estimates that revocation would slash trade by $20-30 billion, eliminate 60,000-85,000 jobs, cut its economic growth rate by over 50%, and reduce incomes by $`4 billion,
Hong Kong's economic strength is one of its chief assets in ensuring its autonomy from Beijing. As Martin Lee recently said, "If the United States is concerned about the handover, then the best thing is to assure the community by making sure nothing dramatic happens to Hong Kong. The (Hong Kong) Democratic Party has always strongly supported renewal of MFN for China unconditionally, We have never changed from that position." Just last week, Governor Fatten wrote to the President that "To those of our friends who say that the best way to help Hong Kong is to attach conditions to China's MFN status, or to withdraw it altogether we say: 'Thanks, but no thanks If you really want to help Hong Kong, the best thing you can do is to renew MFN without conditions.'" In short, failing to renew MFN for China now would hurt Hong Kong just when it most needs our support. Our other friends in Asia would also suffer, notably Taiwan, which has a significant stake in trade and investment relations with the PRC.
MFN Advances Our Human Rights Agenda
I have already discussed the economic harm we would inflict upon ourselves by failing to renew MFN. But ending normal trade relations would also harm U.S. interests in many other ways, including policies about which we as Americans feel most passionately. Historically, China's treatment of its own people has always been at its worst when it is most isolated. Among the darkest hours under the Communist regime, (he years of the Cultural Revolution from 1966 to 976, was also when the PRC was most withdrawn from the world.
Today, by contrast, pluralism is increasing in China and our close economic engagement with Chinese society is a major engine driving this process. Every year, thousands of Chinese visit this country on business. While here, they receive first-hand a dose of the American way of life; our politics, our economy, and our personal freedoms. Thousands more Chinese employees of American firms who do not visit here are supervised by American managers, and correspond via e-mail on a daily basis with their American counterparts. We would do ourselves and the people of China a disservice by unilaterally reducing this influence.
The lack of progress on toleration of political dissent cannot be denied. This Administration has been firm and vocal in opposing PRC human rights abuses, and we will continue to do so. We also recognize, however, the progress China has made in the past 15 years. The average Chinese today enjoys greater freedom of choice in terms of employment, education, housing, travel at home and abroad, and greater access to information than ever before in China's 4,000 year history. Beijing has also begun to pass new criminal and civil laws designed to protect citizens' rights and bring the PRC closer to international norms. Finally, in a development that may one day spread further, the PRC is conducting village elections in rural areas, and perhaps half of China's rural population has participated in these elections. Ambassador James Sasser recently observed one of these elections. As elected officials yourselves, you know better than anyone the significance of this development, which will put into the minds of Chinese the notion that the government should be responsible to the people for how it conducts its affairs
Clearly, however, PRC human rights practices still do not meet international norms and our bilateral relationship cannot come to full fruition without progress on this issue. It continues to imprison dissidents for the peaceful expression of their views, We are concerned about the maintenance of Tibet's unique cultural, religious, and linguistic heritage, and we continue to urge Beijing to reopen discussions with the Dalai Lama. We urge China to provide access to its prisons to international humanitarian organizations. We have urged it to sign and ratify the UN Covenants on Civil and Political Rights and on Economic, Social, and Cultural Rights. We are pleased by Beijing's announcement (hat it will sign the latter covenant and is giving serious consideration to the former We also stress to the PRC the importance of the freedom to practice religion: in particular, we are disturbed by restrictions on religious freedom, harassment of religious groups, including Protestant and Catholic groups, and reports of the destruction of house churches. We note that nonetheless membership in registered and unregistered churches continues to grow. We speak frankly and candidly about these matters in our high-level meetings with the Chinese, and as Secretary Albright insists, we will continue to "tell it like it is." There is no reason to believe, however, that revocation of MFN would cause the PRC to change any of these policies. On the contrary, by lessening outside influence in Chinese society, it would remove an important influence for further reform MFN helps, not hurts, our pursuit of human rights objectives.
The China Service Coordinating Office, an organization serving more than one hundred Christian organizations in service and witness in China, agrees. It fears revocation of MFN would: (1) close doors for service in China through educational, cultural, and other exchanges; (2) undermine Hong Kong and Taiwan, thereby hurting Christian outreach to the mainland from those islands; and, (3) hurt most exactly those areas where social and political developments are most promising. The China Service Coordinating Office recognizes that engagement keeps the door open to continued progress on religious freedom in China and on human rights more generally.
Engagement Strategy Has Produced Results in Other Areas
Our strategy of engagement has produced impressive results in other areas as well, and by disrupting this policy, revocation of MFN would halt prospects of further progress and threaten our achievements. We are working with China to begin the Four Party Talks to end the state of war on the Korean Peninsula. China will play a critical role in determining the success of these historic talks.
In the area of nonproliferation, China in 1994 agreed to abide by the guidelines and parameters of the Missile Technology Control Regime. It signed and ratified the Nuclear Nonproliferation Treaty and the Chemical Weapons Convention. In May of last year China issued an important statement that it would not provide assistance to unsafeguarded nuclear facilities We have had useful talks with Beijing on issues involving the-export of nuclear technology, and expect further progress as we work toward meeting conditions necessary to implement' our 1985 agreement on uses of peaceful nuclear energy.
There are other nonproliferation matters where we have been disappointed with the progress we have made, and we are continuing to work on those areas. We have expressed our strong concerns about China's inadequate controls on the export of materials and technology that can be used in missile development and chemical and biological warfare; about shipments to Iran by Chinese companies of dual-use chemicals and equipment that can be used in a weapons program, and about its arms sales to Iran and Pakistan. Last month, we imposed sanctions on Chinese individuals and companies that were providing assistance to Iran's chemical weapons program. We will continue to take appropriate action in the future against such violations of our laws.
Our strategy has also achieved a reduction of tensions in the Taiwan Strait. In March of 1996, the President dispatched two carrier battle groups to the area in response to the PRC missile exercise in the Strait. At the same time, we reaffirmed our commitment to the three communique's and our support for the peaceful unification of Taiwan with the mainland. Our actions reassured Asia and the world of our commitment to the peaceful resolution of the Taiwan issue. Tensions in the Strait have subsided since our action, and, for the first time, some direct commercial shipping has recently opened between Taiwan and the mainland.
In the environmental field, our two governments have increased cooperation by establishing the U.S.-China Environment and Development Forum. Vice President Gore inaugurated the Forum during his recent visit to China. The Forum has set an ambitious agenda for collaboration in four areas: energy policy, environmental policy, science for sustainable development, and commercial cooperation. The combined efforts of our two Environmental Protection Agencies have already resulted in China's recent decision to eliminate the use of leaded gasoline and in the undertaking of joint studies on the health effects of air pollution.
In conclusion, Mr. Chairman, let me be very clear about this vote. The vote on renewal of MFN is most assuredly not a vote endorsing China's policies. Everyone of us opposes many of the practices and policies of the PRC. This vote is about American national interests It is about the kind of international environment that the United States is constructing for the 21st Century. It is about advancing our concerns on human rights. It is about working together with China to protect the environment that we all share. It is about good jobs for American workers, lower prices for American consumers, and a huge market for American businesses. It is about, Mr. Chairman, continuing to conduct a firm, forceful, patient and diligent diplomacy that advances our national interests, rather than throwing up our hands and turning away, heedless of the consequences.
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